Some say yes, but others expect that the Sept. 21 lows will hold in the weeks ahead.
June 8, 2002: 7:32 AM EDT
By Jake Ulick, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Investors who like stability should tune out Fred Sears.

Sears, portfolio manager at Investor Capital Funds, expects stocks to rally by the middle of next week only to fall over the next two years as the major indexes continue to see short, violent surges amid longer-term declines.

"The P/Es on the Dow and S&P are too high," said Sears, who is steering clear of the technology companies and large capitalization stocks that have burned investors since late 2000.

U.S. stocks start Monday near their lows of the year following a week when Tyco International (TYC: Research, Estimates)'s CEO resigned and then indicted, Intel (INTC: Research, Estimates) warned about revenue and profit, and May job growth was less than expected.

The latest losses cap a volatile patch. The Nasdaq composite index has enjoyed nine of its 10 biggest one-day gains during a two-year period that the index has tumbled 69 percent. Expect more of the same, says Sears.

But Chuck Carlson, CEO of Horizon Investment Services, holds a more upbeat take on the major indexes, which are still well above levels on Sept. 21, when the market tumbled to three-year lows following the terrorist attacks.

"The first thing you need to do is take a step back," said Carlson, who -- encouraged by low inflation and forecasts for rising corporate profits -- does not expect a return to last year's lows.

"If we haven't run the course on this correction, we are probably pretty close," he said.

The contrasting views of Carlson and Sears follow a week of disappointments. Dennis Kozlowski was charged Tuesday with cutting illegal deals to avoid more than $1 million in taxes a day after he resigned as Tyco's CEO. Intel warned Thursday that weak demand for chips in Europe would cut into sales this quarter.

And the week's most important economic report showed that employers createdjobs at a slower-than-expected pace last month -- even though the unemployment rate fell to 5.8 percent.

"The economy is making a turn, but not a vigorous one," said Mike Moran, chief economist at Daiwa Securities. "Investors are leery about what financial shape businesses are in."

The markets responded, with the Dow Jones industrial average sliding 3.4 percent this week and the Nasdaq composite index falling 5 percent. But stocks finished well off their lows Friday.

Retail, confidence figures ahead
The coming week's most important economic data don't come until Thursday with the release of May retail sales and wholesale prices.

Retail sales are expected to have held steady last month, according to economists surveyed by Briefing.com, following April's 1.2 percent gain. The Producer Price Index, a measure of inflation before it reaches consumers, is seen having risen 0.1 percent in May after a 0.2 percent drop the previous month.

Friday's government report on industrial production is expected to show a 0.4 percent gain in May following an identical April rise.

An early look at June consumer confidence also comes Friday. The University of Michigan's index on sentiment is seen ticking up to 97 from 96.9 in April.

Daiwa Securities' Moran expects May's soft auto sales figures to take a bite out of retail sales. And he's forecasting that the tumbling stock market could hurt consumer confidence.

Amid mixed economic data, Federal Reserve policy makers are almost certain to leave interest rates at 40-year lows when they meet later this month. Economists don't expect higher rates until unemployment shows a steady decline, which may not occur until later this year.

Bruce Steinberg, chief economist at Merrill Lynch, forecasts no change in interest rates until September from a Fed that slashed borrowing costs 11 times last year.

"But with two more jobs reports before the August FOMC meeting, an August move is still possible," he said.

As for earnings, tax preparer H&R Block (HRB: Research, Estimates) reports a quarterly profit Wednesday that is expected to have risen to $2.44 a share from $2 a year earlier. On Thursday, graphics software maker Adobe Systems (ADBE: Research, Estimates) is expected to say it earned 25 cents a share in its latest quarter, down from 34 cents in the prior year.